Iron ore contract pellet premiums for 2018 look to be rising significantly from 2017 accords to pressure steel costs, multiple sources in the middle of negotiations along with several buyers indicated this week.
A premium of $62/dry mt for direct reduction grade pellets was described as a “possible” outcome in the context of current blast furnace pellet premiums, a source close to negotiations said.
Blast furnace premiums peaked last week at over $59/dmt in China. DR grade agreed for the year at $2-3/dmt higher than this level was said to be more acceptable than applying typical DR premium quality over blast furnace grades, which is $8-10/dmt higher, he said.
Contract DR pellet premiums in 2017 ranged between $52/dmt and $56/dmt, while for reference blast furnace pellets, annual contract premiums were around $45/dmt, according to sources.
The rise in premiums comes as China cuts pollution, aiding demand for direct iron charge product, and Brazil’s Samarco remains idled.
Final terms and agreed fixed adjustments provide a degree of difference in final invoicing, with 62% Fe fines pricing in China used as the main basis in pellets.
The impact of pellet premium increases on the costs of producing steel, may lead to a rethink on pellets within the iron ore burden, as the proportion and grades of pellets used may be adjusted.
Any increase in premiums will need adjustment by iron content in the pellet, and the degree of usage within the blast furnace burden. DRI plants use pellets exclusively for iron charge.
As for diversified mining and steel groups in the Commonwealth of Independent States, a rocketing pellet premium may impact allocations to sell pellet externally or make their own steel.
Meanwhile, miners with streams of pellets and concentrates sales have been moving surplus concentrate for pelletization where there may be spare capacity in pellet plants, suppliers said.
To evaluate pellet and iron and steelmaking opportunity costs, the outlook for Black Sea pig iron and Turkey scrap benchmarks may be key.
They are regional references and substitutes along with DRI, and building blocks in finished steel products.
Black Sea FOB pig iron averaged at $343.13/mt in October, just above the average for the first 10 months of 2017. Prices averaged around $242/mt FOB in 2016.
Turkey import reference heavy melting ferrous scrap averaged at $304.55/mt CFR in October, while the average for the first ten months of 2017 was $293.44/mt CFR. Prices averaged around $235/mt CFR in 2016.
Any attempt to draw heavier price discounts for CIS pellets next year, for quality reasons over reference Brazilian pellets, may be countered by the risk overall demand may be higher than quantity to allocate.
If pig iron and steel prices can rise by $15-20/mt it may be better to limit additional pellet sales, as the steel price would cover the increase in the pellet premium.
Russia’s larger iron ore miner Metalloinvest shipped 58% of its iron ore pellets externally in 2016, while in Q3 2017, external pellet sales had fallen to 48%.
The company increased its DRI/HBI production in 2017 from rates reported for 2016.
Source: PlattsPrevious Next
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